July 30th 2008

By Kelly Zito

San Francisco Chronicle

July 30, 2008

Billionaire founders of San Francisco's Gap Inc. are expected to take control of some of the most valuable timberland in the country within days, after a federal appeals court Tuesday shot down some of the last legal arguments from opponents to a plan to reorganize the storied Pacific Lumber Co.

A federal bankruptcy judge in Corpus Christi, Texas approved a proposal last month by Mendocino Redwood Co., a logging outfit owned by Donald and Doris Fisher, to salvage Pacific Lumber's 145-year-old Humboldt County business. The property includes a sawmill and more than 200,000 acres of prime redwoods and Douglas fir trees.

Although the plan drew wide support from the company town of Scotia, state regulators, the governor and environmental groups, one group balked: a set of bondholders whose debt is secured by the forestland. They favored a $600 million bid for the land from Texas banker and high-stakes poker player Andy Beal. While higher priced, that plan could have meant selling off the property in pieces.

This week, U.S. Bankruptcy Judge Richard Schmidt and the Fifth U.S. Circuit Court of Appeals in New Orleans denied the bond holders a stay - which could effectively close the case.

As a result, officials of Mendocino Redwood's newly formed Humboldt Redwood Co. plan to take formal control of the holdings Wednesday. Within days, the firm expects to take inventory of the lumber and set staffing levels.

"We think the people of Humboldt County want to have forest operations to a standard they can feel good about," said Sandy Dean, chairman of both Mendocino Redwood Co. and Humboldt Redwood Co. "They want a successful sawmill, a stable employment base and they want to move forward."

The Fisher plan offers $530 million for the land, promises to keep the Scotia sawmill running with a workforce cut from 350 to 250, and to harvest about 50 million board feet from the forest each year. The company will also seek certification from the Forest Stewardship Council, which advocates sustainable forestry.

Pacific Lumber is currently harvesting about 100 million board feet each year; in the 1990s, annual harvesting maxed out at 300 million board feet.

"If it's actually the end of what seemed like an endless saga - it's fantastic," said Paul Mason, deputy director of the Sierra Club California. "Pacific Lumber's history of management had been community strife and ecological damage."

Over the last month, the bondholders had turned to several courts in an effort to stay the transfer to the Fishers' company. But this week, both the bankruptcy and appeals courts ruled against them. Schmidt, in his opinion, called the bondholders request for a stay "the latest in a series of attempts by the (bondholders) to forestall or disrupt confirmation" of the Mendocino plan.

The vast acreage has been at the center of a legal, financial and environmental storm ever since Pacific Lumber's takeover by Texas financier Charles Hurwitz in 1986. At that time, the company and its practices became a lightning rod for high-profile protests, including Julia Butterfly Hill's two-year residence in the boughs of an old redwood she named "Luna."

That same period birthed the so-called Headwaters Agreement, in which state and federal agencies paid about $500 million to preserve more than 7,000 acres of old-growth forest as parkland. The pact also regulated more stringently how and where the company could harvest timber on the remaining 210,000 acres.

Under those constraints and a mountain of debt, Pacific Lumber was forced to file for bankruptcy protection in January 2007.

The Fishers were among several suitors competing for control of the firm. Among others, both formal and informal, were Beal, Harvard University, and at one point, Pacific Lumber itself. Earlier this year, the company's plan valued its lands at roughly $1 billion and called for developing about 22,000 acres into multimillion-dollar luxury estates.

Dean, the Mendocino/Humboldt chairman, lauded various policy makers, environmentalists and community members for supporting the company's plan, said that nonetheless the transformation of the land into a healthy forest will not happen overnight.

"This is an important day moving forward for Scotia, the mill," Dean said. "It's a time for people to breathe a sigh a relief. But there are also challenges ahead - changing forest policies will take some time. This is the beginning of a new chapter for redwood forestry in Humboldt County."